With the steadily increasing demand for shared office spaces, coworking companies are continuously exploring new business models. While some luxury coworking space providers are continuing to thrive by focusing mostly on tier I cities, many smaller providers are opening centres in tier II and tier III cities to expand their customer bases. As a result, we’re witnessing impressive growth in coworking spaces in India’s smaller cities.

In this post, we’re going to see the key factors that have been instrumental in developing this trend.

The changed culture of the innovation landscape

Once there was a time when the start-up culture was only restricted to major cities such as Delhi, Mumbai, Bengaluru, and Hyderabad but today the scenario has significantly transformed. Now, a huge number of start-ups are successfully operating out of Indian smaller cities. Also, with the modified contours of urban India, established businesses have started looking beyond the tier I cities. The continuing migration to urban centres is one of the key reasons behind this.

According to a report by the BCG, by 2025, urban areas will be accommodating around 40% of the country’s population and these people will account for over 60% of the total consumption. Apart from this, today, in smaller cities, there’s no shortage of infrastructure support and innovative minds. Also, the cost of setting up a business in smaller cities is relatively lower than that of in bigger cities. This is one of the key reasons why many established businesses have opened up branches in tier II cities. Various initiatives from the government are another factor that’s playing a crucial role in promoting the growth of start-ups. For example,

Startup India through which the government promotes new ventures and provides them with subsidies in certain areas. The availability of different types of funding options is also boosting the start-up growth in smaller cities. In earlier days, business owners in smaller towns had two primary methods for acquiring funds – borrowing from a bank or from family members and friends. However, these days, different options are also available – from seed funding and venture capitalists to angel investors. Therefore, start-ups in smaller towns can easily access funds for their new business models. And lastly, the growth of this ecosystem is being propelled by the rapid evolvement of the Indian metro, which lets start-ups embrace smaller cities over the bigger ones.

The steadily increasing demand for coworking spaces in tier II and III cities

With the innovation growth spreading across the country, the availability of coworking spaces is becoming important than ever. For most people, who’re starting their own business, a major difficulty is paying the rent for the office space. It’s a very expensive affair for a small start-up to lease a conventional office space in urban areas.

The situation becomes even more difficult for start-ups and entrepreneurs who’re yet to establish their business but there’s no guaranteed cash flow. And this is exactly where coworking spaces make their life easier. Start-ups having a few team members can easily join a coworking space to start off rather than renting a whole place. They don’t need to shell out a hefty amount of money to cover the refundable deposit, maintenance charges, and other expenses. By choosing flexible plans, which are the key USPs of coworking spaces, they can start operating and focus on generating revenue.

Another key reason why start-ups are increasingly choosing coworking spaces is the availability of facilities. Start-ups and young entrepreneurs get to use these spaces as a platform for achieving their business ambitions irrespective of their backgrounds. Moreover, many coworking spaces regularly host various professional and networking events where their members can meet and learn from mentors and industry leaders, which expedite their professional growth.

The differences in preferences of co-workers between smaller and bigger cities

This is another key reason for which many coworking companies are now focusing on smaller cities. While coworking spaces in smaller cities offer a lower number of desks, they remain as busy as the coworking spaces in bigger cities. This is because co-workers in smaller cities tend to prefer coworking spaces offering more private areas than a large number of desks. It not only helps them to have more interaction and teamwork but provides them with more privacy as well. /

Having more privacy often plays a crucial factor for co-workers in smaller cities because they usually don’t get to enjoy a vibrant life outside of the office like their counterparts in big cities. Additionally, co-workers in smaller towns aren’t as interested in meeting prospective clients within the office space as those, who operate out of bigger towns. Instead, they’re usually more interested in meeting and networking with professionals from their own and other industries. Moreover, for coworking spaces in smaller cities, it might not be an absolute necessity to provide the occupants with top-notch amenities except for meeting spaces, high-speed Internet connection, and parking spaces.
 

Now, you might be wondering why parking spaces seem to be almost essential in smaller cities. This is because in these areas, professionals tend to commute using their own vehicles while in bigger cities, using public transport is a more common thing.

What coworking space providers should do to maintain profit?

From coworking space providers’ viewpoint, in smaller cities, the density of start-ups is still relatively lower than in bigger cities. It means they can easily find enough start-ups and entrepreneurs, who’re searching for fully-equipped and ready-to-use shared office spaces, without competing against top-tier coworking space providers.

However, to achieve sustained growth, coworking companies should try to manage vacancy and occupancy efficiently. The reason behind this the profitability of a coworking space depends on various factors – from the cost for infrastructure, amenities, and value-added services to its location and the working environment it offers.

Therefore, while coworking companies need to use their funding to maintain the quality and the infrastructure of the space, they also need to think of and implement innovative ideas to attract customers to leverage the ample opportunity available in smaller cities.